Company of the week: Bellway

Housebuilder Bellway (LSE: BWY) is in rude health. Half-year profits were up by 70% on the back of selling 25% more houses at prices that were 13% higher. Government subsidy scheme, Help to Buy, accounted for nearly a third of reservations. Bellway is also helped by having a lot of building plots in the south of England, which accounted for 62% of its sales.

Analysts expect the good times to keep on rolling. As profit margins and return on capital have yet to reach their pre-crisis peaks, you can see why they hold this view.

That said, builders have benefited massively by selling houses on cheap land bought at the bottom of the market. Whether they can make the same juicy returns on land bought more recently remains to be seen.

Bellway shares are up by 30% since we tipped them as a punt back in June. As long as Help to Buy stays in place, it will keep selling lots of houses and making good money.

However, house prices, particularly in southeast England, are rising much faster than wages, and affordability is becoming stretched.

For a cyclical business, Bellway’s shares on 12 times earnings and 1.6 times book value are no bargain and the easy money has probably been made. There may still be further gains ahead, so hold them if you’ve got them, but I wouldn’t buy in now.

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